Picking the best performing stock on the FTSE 100 for 2025 is almost certainly setting myself up for failure. However, I think investors should consider IAG (LSE:IAG). The stock is offering momentum, supportive trends, an attractive valuation, and impressive profitability.

Let’s take a closer look.

Top of the pack

IAG, which owns British Airways and Iberia, operates airlines across the intercontinental and inter-regional budget markets. It is one of the largest in Europe by fleet size. The company has seen a strong recovery throughout most parts of the business since the dark days of the pandemic. In fact, the civil aviation sector is projected to remain very robust over the next few years.

According to analysts, IAG is likely to remain best in class throughout this period. Its EBIT (earnings before interest and tax) margin is expected to reach 15% by 2027 — up from 10% in 2023. In fact, the Iberia brand is already achieving a 14% EBIT margin. The group is expected to deliver best-in-class return on invested capital and free cash flow generation in the medium term.

The business is also expected to reap the benefits of a transforming fleet, delivering more operational efficiencies, notably through fuel efficiency. That’s important because fuel costs represent the largest margin differential. As such, falling fuel prices combined with an increasingly fuel efficient fleet represent catalysts for earnings growth.

The numbers add up

Most experienced investors will rely on quantitative metrics to some extent. Quantitative models include the obvious valuation data, but also things like profitability metrics, growth expectations, and whether earnings expectations have recently been revised upwards or downwards. Many investors also like stocks with strong share price momentum as this often reflects investor sentiment towards the stock.

So, what are these numbers?

• For starters, the stock is trading around seven times forward earnings. That’s appears to be an approximately 15%-20% discount to the global airline industry.
• Current forecasts suggest earnings will grow by around 12% for the next three years, with the forward price-to-earnings (P/E) falling from 7 to 5.8 times for 2026.
• The company’s gross profit margin from the last year around 27% is almost industry topping.
• Over the past month, IAG has received the highest proportion of positive earnings revisions from analysts. This tells us that analysts are increasingly bullish on the firm.
• As of June 2024, IAG reported debt of £16.12bn is not concerning given it’s £13.2bn of cash and facilities.

Anything to worry about?

No investment is risk free. With the IAG share price surging over the past 12 months, it’s entirely possible that we could see some profit-taking as we start 2025. If shareholders sell their stock to lock in their gains, the share price could fall.

Moreover, Russia’s war in Ukraine and conflict in the Middle East have highlighted how vulnerable the sector is to fuel price fluctuations. With fuel representing around 25% of operational costs, rising prices have a sizeable impact on earnings.

The bottom line

IAG has all the hallmarks of a winner as we move towards 2025, and investors may want to put this one on their watchlist. It’s well represented in my portfolio and I’m tempted to buy more. The issue is that I’m already heavily invested in airline stocks.